Dubai’s Aramex soars on foreign takeover hopes

Shares in Dubai’s express courier Aramex have surged this year on hopes that changes in foreign ownership laws in United Arab Emirates companies could tempt a takeover bid by larger rivals such as Fedex Corp. or TNT .

Aramex’s shares were at 2.23 dirhams on Monday, just under a 27-month high. It has gained more than 50 percent this year while Dubai’s index has fallen 6.6 percent over the same period.

The UAE’s Federal National Council, an government advisory body, is expected to debate the law decide to raise foreign ownership limits of some companies from the current 49 percent.

“Oil and gas companies and banks are likely to stick with the current foreign ownership restrictions, but transport, healthcare, education, construction, real estate and all other sectors in which the government would welcome foreign investment are likely to have their limits raised,” said Zahed Chowdhury of Al Mal Capital.

New caps will be set on a sector-by-sector basis, the Securities and Commodities Authority said in a statement. Aramex offers international and domestic express delivery, freight forwarding, logistics and warehousing, documents managements and online shopping services.

Companies can also set their own foreign ownership limits up to the maximum percentage for their sector.

Ahead of the likely changes, some investors have bet on foreign firms taking control of select listed UAE firms, with Aramex seen as a prime target for global rivals such as TNT Fedex or United Parcel Service Inc .

Consolidation within the express courier sector has been long expected, with Dutch TNT seen as a potential target for its U.S. rivals.

“There are rumours referring to some old media reports that TNT may be interested in acquiring Aramex,” said Julian Bruce, director of institutional equity sales at EFM-Hermes. “The stock is solely driven by local investors who are speculating on this possibility.”

Aramex traded on the NASDAQ from 1997 to 2002 and began trade on the Dubai bourse in 2005.

“Aramex is a solid company, with good fundamentals and a blend between value and growth,” said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

“It’s one of the stocks well liked by foreign investors and that is what is holding it a premium relative to other UAE companies, but I believe it is trading around its fair value.

“Aramex would be of interest to global players, but valuation is everything and I don’t think the stock offers much upside.”

Kareem Murad, an analyst at SHUAA Capital, played down chances of a hostile takeover of Aramex, despite a 90 percent free float.

“A hostile takeover would not be easy and seems pretty far-fetched because I doubt we would see a sell-off from the management itself – the CEO has built up a very successful brand over many years,” said Murad.

Aramex is at its foreign ownership limit. UAE investors own 42.3 percent of Aramex, with 9 percent held by investors from other Gulf countries, 14.1 percent by other Arabs and 34.5 percent by foreigners, according to Dubai bourse data.

Murad estimates around three-quarters of Aramex’s revenues come from its Middle East operations, while its Ireland-based unit accounts for around a quarter.